After conquering much of the Middle east and Asia Pacific regions, Islamic finance is set to expand further afield to North Africa, as a number of institutions look to introduce their products and services to new locations

Withstanding a great many challenges in recent years, sharia-compliant financial products have cemented a place as a robust and attractive financial option for those seeking an assured investment opportunity. Having long interspersed the risk-averse and largely Muslim populations of the Gulf and Asia Pacific regions, a vast Islamic finance industry looks to expand further afield to unlikely and unprecedented markets such as North Africa.

Islamic finance is developing still limited in the Maghreb, but it seems to have a promising future.

In Algeria, the phenomenon emerged in 1991, officials of the central bank prefers to allow the supply of Islamic products to individuals rather than see this happen in the sector informal. Al Baraka Bank, with the largest shareholder group in Saudi Arabia. Al Baraka is not seen yet officially given the label “Islamic” because it would cast doubt on the Islamic identity of traditional banks, argues Algiers.

Single institution, even today, to offer Islamic products in Algeria, Al Baraka attracts a clientele that wants to comply with the religion. The product works best is the car loan, “probably because he does not claim to have great visibility into the future,” said Hamza Bouaziz, PhD in economics and finance at the University of Paris I — Pantheon-Sorbonne and author of a thesis on the topic of Islamic finance in the Maghreb. Since 2001, 47 500 vehicles were purchased in Algeria with an Islamic finance, including 17 500 in 2006 alone. Real estate is not really concerned, but this may come as speculation in this area is important, especially in Algiers.

General Weakness

If Islamic finance is no better drilled, this reflects the general weakness of the Algerian banking system, a legacy of thirty years of socialism. But in a country where religious revival is strong potential demand is probably high.

In Tunisia, there is only one Islamic bank, the Bank BEST (Beit Ettamouil ESSAOUDI Ettounsi Bank). It was created in 1983, but remains restricted to local institutional as well as large investors, especially those in the Gulf. The Tunisian authorities have indeed avoided until now to make accessible to ordinary citizens Islamic products, presumably for political reasons. Even more than in the rest of the Maghreb, Tunis afraid of anything related, directly or indirectly, to Islam.

An important step was however taken in February, with the passage of a law authorizing the creation of an international Islamic institution in collaboration with the Islamic Development Bank (IDB), said Bouaziz Hamza. This institution will be responsible for financing and promote trade between Arab countries, especially between the Maghreb and Mashreq. ”

In Morocco, the Islamic banking products – officially called “alternative” – have entered the capital market on 1 October, with the approval of the ruling Justice and Development Party (PJD, a moderate Islamist party). The government hopes to bring in the banks of many Moroccans who settle their transactions in cash. Only 20% of the population uses a bank account. Attracting capital from investors in the Gulf is another issue.

It is too early to take stock of this turn in Morocco. For now, only three conventional banks offering Islamic products. The beginning was laborious. The car loan is, as in Algeria, which works best. This success is due not so much because it is money “halal” (according to the precepts of Islam) because the loan is cheaper by about 10% compared to traditional products, to Unlike mortgages.

Ultimately, all the experts say: the future of Islamic finance in the Maghreb is more in its competitiveness in its conformity to the Qur’an .